Are Mobile Payments Ready for Primetime? Square CTO Weighs In

PCMag sat down recently with Square CTO Bob Lee, a Google veteran who joined Square in 2010, who talked about Square's evolution, the challenges surrounding mobile payments, security concerns, and more.

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Mobile payment options have made a number of headlines recently  from Google Wallet to PayPal Here. Just yesterday,
MasterCard also announced PayPass Wallet, which will let its cardholders and partners securely pay with phones or online with just one click.

One of the first options to hit the market, however, was Square, the brainchild of Twitter co-founder Jack Dorsey and artist Jim McKelvey.

Dorsey tweeted recently that Square is now processing $5 billion a year, up from $4 billion just a month ago, thanks to equipment that turns a smartphone or iPad into a card reader or cash register and lets users pay for goods without ever pulling out their wallet. One group making use of the technology is art fair and farmers' market vendors; Square today announced that its card reader will be the payment option of choice for more than a dozen fairs throughout the country this summer.

PCMag sat down recently with Square CTO Bob Lee, a Google veteran who joined Square in 2010, who talked about Square's evolution, the challenges surrounding mobile payments, security concerns, and more.

PCMag: Can you give me some background on how Square got started, and how it's evolved?Bob Lee: Square started about three years ago. The original inception of it had to do with one our co-founders, Jim McKelvey. He's also a glass blower and he has a glass-blowing studio in St. Louis, so he was trying to sell a rather expensive piece of glass, but he didn't accept the type of credit card that the payer wanted to use, so he ended up losing the sale. Then he started talking to Jack Dorsey, who he had worked with before and they both questioned, 'Why do we have to lose this sale? With these what amounts to totally capable computers that we're carrying around in our pockets, why couldn't we have just taken the credit card?'

So he set out to do that. Accepting card payments on a cell phone seems pretty simple on the face of it, but not knowing much about credit-card processing, the first thing they did was go out and try to sign up to take credit cards themselves. And they quickly found out how arduous and terrible a process it is. For example, before Square came along, you had to get something called a merchant account, which is a special type of bank account and it would take, literally, probably about a month to six weeks to get one of these.

And then, you find out [that] there's a variety of fees you have to pay  sign-up fees, cancellation fees, the hardware, it's very expensive and typically overpriced. If you think your cell phone plan has a lot of fees, it doesn't hold a candle to traditional credit-card processing structure. Also, you get charged a different rate depending on the card type.

We didn't like this, so we set out to fix all these problems, which was a much bigger task. First, we fixed the onboarding problem, which we had to completely recreate. This was as challenging from a business perspective as it was from a technical perspective. But the result was that a merchant is able to download their app, sign up in the app, and start taking card payments in two minutes as opposed to the four to six weeks with a traditional merchant account.

We settled on this flat rate of 2.75 percent. We don't charge a fixed fee per transaction, which normally you'd get charged 15 or 30 cents per transaction. We even got rid of that in the effort to make things simpler.

Q: Does that end up costing Square more money?
We still pay the same rates on the back end, but we basically abstract these fees so [the user] doesn't get exposed to all that ugliness. That means that on the whole, we make money but we certainly take a hit on certain transactions.

That was Square Card reader and that's great with sole proprietors  people at farmers' markets and all the way up to the apps used by the Obama and Romney campaigns and individuals on-the-go.

The next thing we created was Square Register and with this, we've added more point-of-sale features that bigger merchants need. What we're doing is we're trying to take all the features that big-box stores and larger merchants have and bring them to smaller merchants and effectively level the playing field.

In some cases, we're even giving them better tools than the big-box stores have and we're able to do that because we have some of the most elite engineers in the world, as you can see with our analytics tools which we used to build our real-time merchant analytics. And that's unlike anything that you'll see anywhere. So we're bringing these features to merchants so they can dig down and analyze their payment data and make smart business decisions.

From there, the next product we created was something we called Card Case but has been re-branded to Pay With Square, which attacks the payer side of the equation [and identifying] the ideal payment experience. To me, that's being able to walk into a restaurant, sit down, eat, and you get up and leave  never have to take your phone or wallet out of your pocket. That's what we shoot for with Pay With Square and indeed, we come pretty close to that.

The way it works is the payer has an app running on their phone and it communicates through Square server with the Square Register running on the merchant's device. The first time it goes somewhere, the payer can pull out their device and Pay With Square will tell them all the businesses that are around them, so this enables the payer to discover new businesses and we can make recommendations.

So say I want to go to get coffee. The first time I pull it out, I tap a button called "open tab" in the app and that effectively opens a tab with the coffee shop. And when I go to pay, I just tell them, "Put it on Bob" and they see my name and my photo on the register and they just tap that to pay. From then on, anytime I go there, my phone will automatically open up a tab based on my location and at that point, I don't even have to take my phone or wallet out of my pocket anymore.

Q: Which Square product is most popular?
Card Reader definitely has the most uptake, and it's definitely the product of today. It addresses the fact that everybody carries around plastic in their pocket. Pay With Square, in my mind, is the product of tomorrow. It's like the aspirational payment experience.

About the Author

Before joining PCMag.com, Chloe covered financial IT for Incisive Media in NYC and technology policy for The National Journal's Technology Daily in Washington, DC. She has held internships at NBC's Meet the Press, washingtonpost.com, the Tate Gallery press office in London, Roll Call, and Congressional Quarterly. She graduated with a bachelor's deg... See Full Bio

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